If you use a company car for personal trips in Saudi Arabia, you may owe tax on a monthly benefit valued at 1% of the car's new price. Here's how to calculate it in SAR and what the latest ZATCA guidelines say.
Using a company car for personal errands or commuting is a taxable benefit in Saudi Arabia. While Germany’s famous 1% rule isn’t officially codified here, the Zakat, Tax and Customs Authority (ZATCA) treats the personal use of a corporate vehicle as additional income, typically valued at 1–2% of the car’s new price per month.
What is the 1% rule for company cars?
According to German publication Auto Bild, the 1% rule states that an employee who receives a company car and uses it privately is deemed to have a monthly benefit equal to 1% of the car’s list price (including VAT). This amount is added to the employee’s taxable salary.
For example: if a new car costs SAR 200,000, the monthly benefit = 1% × 200,000 = SAR 2,000. This is added to your monthly income, and zakat or income tax is applied accordingly.
How is company car tax calculated in Saudi Arabia?
In Saudi Arabia, there is no official 1% rule, but ZATCA considers the benefit-in-kind as additional income. The benefit is estimated based on the market rental value of the car or a percentage of its price (usually 1–2% per month).
It is advisable to consult a tax accountant for the exact percentage, especially as recent amendments to income tax law may affect the calculation.
Does the rule apply to electric cars?
In Germany, electric cars receive a reduction in the 1% rule (only half the rate) to encourage green mobility. In Saudi Arabia, ZATCA has not yet issued similar exemptions, but green incentives are expected to be introduced soon.
What if the car is used?
If you receive a used company car, the base value for calculating the benefit is the car’s new price at the time of purchase from the dealer, not the current market value. This means you may pay tax on a higher value than the car’s current worth.
How much will the tax cost in Saudi Arabia?
Using the example above: a car worth SAR 200,000 generates a monthly benefit of SAR 2,000. If your zakat rate is 2.5%, the monthly zakat on that benefit is SAR 50. For income tax, the rate depends on your bracket.
Tips to reduce company car tax
- Document business-only use: Keep a daily log of trips. If business trips exceed 50%, you can negotiate a lower benefit value with your company.
- Choose a cheaper car: The lower the new price, the lower the monthly benefit.
- Consider electric cars: Future incentives may make them the best option.
Difference between personal and company car tax
When you buy a personal car, there is no annual tax on its use—only registration and insurance fees. With a company car, the benefit-in-kind is added to your taxable income, increasing your zakat or income tax base.
If you own a business, buying a car under the company name and using it personally requires reporting the benefit in tax returns, or you risk penalties.
Frequently Asked Questions
Does the 1% rule apply in Saudi Arabia?
There is no official 1% rule in Saudi Arabia, but ZATCA treats the benefit-in-kind as additional income, typically valued at 1–2% of the car's new price per month. Consult an accountant for the exact percentage.
How do I calculate company car tax in SAR?
If your new car costs SAR 200,000, the monthly benefit is 1% × 200,000 = SAR 2,000. This amount is added to your salary, and zakat (2.5%) or income tax is applied.
Can I reduce the tax on my company car?
Yes, by documenting business-only use (over 50% of trips), choosing a cheaper car, or negotiating a lower benefit value with your employer. Electric cars may offer future incentives.
What if the company car is used?
The benefit is calculated based on the car's new price when first purchased, not its current market value. This can result in a higher tax than expected.
Sources
- Auto Bild (DE) — So wird der Dienstwagen versteuert
